Important information - the value of investments and the income from them, can go down as well as up, so you may get back less than you invest.

Which investor hasn’t dreamed of a hack that allows them to beat the market on a predictable basis?

Were one to exist it would make you very rich indeed, which probably explains the popularity of investing superstitions - those idioms or sayings that purport to hold the secret to when markets will rise or fall.

Perhaps the best known in a UK context is ‘Sell in May and go away, don’t come back until St Leger’s Day’. This is the idea that the period between the end of April and the running of the St Leger Stakes - a famous horse race run on a weekend in the middle of September each year - is a dead zone for the stock market during which returns fall away. Better to miss out on it altogether, or so the saying goes.

Other notable superstitions include the Santa Rally, the trend for returns to be better in the run-up to Christmas and New Year, and the January Effect, the belief that returns are higher in the first month of the year (sometimes modified to suggest that a positive return in January is a signal of a strong year overall).

But it’s ‘Sell in May’ we’ll look at here. What lies behind the saying and, crucially, does it work?

‘Sell in May’ - a saying from history

The exact provenance of the saying ‘Sell in May and go way, don’t come back until St Leger’s Day’ is unclear but a consensus has formed around the idea that it emerged due to stock market traders in the City of London observing a seasonal slowdown in activity during the summer months. This would reflect the habit of City folk in the past to conclude their business by the end of spring before retreating to the country for more leisurely pursuits over the summer.

‘St Leger’s Day’ refers to the St Leger stakes, a horse race run in Doncaster and the highlight of a four-day meet that takes place over a weekend in the middle of September - racing having been a favourite pastime of the financial world in times gone by.

The theory that stock market returns might slow in the summer made sense when trading was a more in-person activity that required the physical presence of traders. In a world of electronic communication and automatic trading, however, its questionable whether activity would be influenced by such seasonal effects.

Does it work?

Whatever claims could have been made for ‘Sell in May’ in the past, what matters most to investors now is whether it works in today’s world. We ran some numbers to find out.

We looked at returns from the FTSE All Share - the index covering the broad sweep of the UK market - and compared a strategy of staying invested throughout, with the strategy of selling on the first of May and returning to the market on September 15, to reflect the approximate date of the St Leger Day stakes.

We were able to get hold of data back to 1986, reflecting 37 years when it has been possible to compare the two strategies. The graphic below is a simple illustration of the years in which Sell in May worked - shown in green - and when it didn’t - shown in red.

While it might at first appear a close-run thing, a closer look reveals that Sell in May has worked in just 14 of the 37 years and failed in 23 years.

It’s logical to suppose that the strategy has a better chance of working during periods of prolonged market falls - which Sell in May night help you avoid. That’s borne out by the successful years in 2001 and 2002, when the dot com bubble was unravelling. It also worked in 2007 and 2008 during the credit crunch and financial crisis. Most recently, it has worked in both 2022 and 2023.

Nonetheless, Sell in May appears to work less often than it fails - in our chosen time period at least. Over the full 37 years the failure of Sell in May has meant the strategy has badly lagged returns from simply staying invested - as illustrated in the chart below showing the value today of £100 invested in 1986.

The headline numbers on ‘Sell in May’ seem pretty clear. By applying ‘Sell in May’ your £100 investment have grown to £1,391.68 today. That compares to £2,014.45 if you had remained invested throughout that period.  Following it, therefore, is likely to leave you significantly worse off versus staying invested.

Perhaps the real value of ‘Sell in May’ is as a reminder that stock markets have a track record of rising in the long run - albeit with periods of loss along the way. Removing yourself from the market for four-and-a-half months of the year, as ‘Sell in May’ requires you to do, reduces your chances of taking advantage of that long-term performance.

(%)
As at 30 April
2019-2020 2020-2021 2021-2022 2022-2023 2023-2024
FTSE All-Share -16.7 26.0 8.7 6.0 7.5

Past performance is not a reliable indicator of future returns.

Source: Refinitiv, total returns from 30.4.19 to 30.4.24. Excludes initial charge.

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Please be aware that past performance is not a reliable guide indicator of future returns. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.

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